Understanding Firm Behavior : The Role of Recruitments and Institutional Reforms

The topic of this thesis is firm behavior and how it is shaped by institutional changes and firms’ recruitment decisions. The first essay studies how the recruitment decisions made by small and medium-sized enterprises (SMEs) affect their subsequent productivity development. Previous studies have shown that being able to recruit employees with complementary skills is associated with skill improvement among incumbent personnel, suggesting that new recruits promote productivity through knowledge spillovers. Using matched employer-employee data, we find that recruiting personnel from large multinational firms can be instrumental for the performance of SMEs. In the second essay, we evaluate the labor market effects of the 2007 Swedish youth payroll reform. This reform generated considerable labor cost savings for firms, related to their pre-reform number of young employees. We study the effects of these savings on firms’ subsequent employment growth and wage development. Our findings suggest that a total of 18,100 jobs were created over the period 2006-2008 and that the savings were partially used to increase the total wages for incumbent employees. The third essay utilizes the 2007 Swedish youth payroll reform to analyze whether general labor cost reductions enhance labor market opportunities for non-western immigrants. In contrast to targeted and time-limited wage subsidies for immigrants, which have frequently been used in the past, these savings were not tied to a specific group or to a certain time period. A strong and positive link between the amount of firms’ labor cost savings and the employment of first-generation non-western immigrants is found. The fourth essay evaluates the efficiency of a staff register reform introduced within the Swedish restaurant and hairdresser industries in 2007. The aim of this reform was to prevent firms from deliberately understating their wage payments and, thereby, evading taxes. We estimate the effect of the staff register reform on wages per employee and find wage increases of 2.17-10.2 percent per incumbent employee at restaurant firms during the four years following the introduction of the reform. Through a revenue-cost comparison, we compare the estimated gain in tax revenues to the total costs borne by firms and the tax authority. Our findings imply that the total costs exceed the tax revenues, suggesting that this reform is unlikely to be economically justified